Miller Brewing v. Indiana Dept. of State

• Citation: 903 N.E.2d 64
• Decision Date: 13 March 2009
• Docket Number: No. 49S00-0711-TA-553.,49S00-0711-TA-553.
• Parties: MILLER BREWING CO., Appellant (Petitioner below), v. INDIANA DEPARTMENT OF STATE REVENUE, Appellee (Respondent below).
• Court: Supreme Court of Indiana

903 N.E.2d 64

MILLER BREWING CO., Appellant (Petitioner below), v. INDIANA DEPARTMENT OF STATE REVENUE, Appellee (Respondent below).

No. 49S00-0711-TA-553.

Supreme Court of Indiana.

March 13, 2009.

Stephen H. Paul, Brent A. Auberry, Indianapolis, IN, Attorneys for Appellant.

Roxanne Bland, Shirley Sicilian, Washington, D.C., Attorneys for Amicus Curiae Multistate Tax Commission.

Gregory F. Zoeller, Attorney General of Indiana, Andrew W. Swain, John D. Snethen, Jessica Reagan, Deputy Attorneys General, Indianapolis, IN, Attorneys for Appellee.

On Petition for Review of Interlocutory Order

SHEPARD, Chief Justice.

The Tax Court ruled in an earlier case addressing the share of Miller Brewing Company's income that is taxable by Indiana. In this case the Tax Court held that its previous ruling did not bar the Department of Revenue from raising new contentions in support of a different method of allocation of income to the state. We affirm.

Facts and Procedural History

Miller Brewing Company produces malt beverage products that are sold to customers located in Indiana. Miller is headquartered in Milwaukee, Wisconsin, and its Trenton, Ohio, brewery produces most of the products sold to Indiana customers. This case concerns the percentage of Miller's nationwide income that is subject to Indiana income tax in 1997, 1998, and 1999. Indiana taxes a portion of the income of corporations doing business in this state, measured by the percentage of sales allocated to Indiana.¹ Specifically, the issue is whether sales to Indiana customers are allocated to Indiana if the customer arranged for a common carrier to pick up the product at Miller's facility in another state. Miller Brewing Co. v. Ind. Dep't of State Revenue (Miller I), 831 N.E.2d 859 (Ind. Tax Ct.2005), addressed this issue as to 1994-1996. Miller contends that the ruling of the Tax Court in Miller I resolved this issue in Miller's favor and binds the Department under the doctrine of issue preclusion.

In its 1994, 1995, and 1996 Indiana tax returns, Miller reported all sales to Indiana customers as Indiana sales irrespective of the means of delivery to the customer. Miller requested a refund for income based on sales in which the customer picked up the product outside Indiana and also if the customer arranged for a carrier. The Indiana Department of Revenue granted the refund as to customer-pickup sales but denied it as to carrier-pickup sales. Miller appealed, and the Tax Court held that sales to customers who arranged transportation to Indiana by common carrier did not constitute Indiana sales for the purpose of allocation of income to this state. Miller was therefore entitled to a refund of the taxes paid as a result of treating these sales as allocable to Indiana. Id. at 863. Review by this Court was denied. 855 N.E.2d 998 (Ind.2006) (table).

In 2001, the Department completed an audit of Miller's 1997, 1998, and 1999 returns and issued proposed assessments for all three years based on including in the sales factor all sales shipped by common carrier to customers in Indiana. Miller filed a protest, and after a hearing the Department issued a Letter of Findings denying Miller's request for a refund on the ground that Indiana's sales factor was based on a "destination rule," which allowed Indiana to treat sales of products picked up by common carriers for delivery to Indiana as sales derived from this state.

Miller appealed to the Tax Court, arguing that issue preclusion barred the Department from denying a refund for customer-arranged carrier-pickup sales and moved for summary judgment on that ground. The Department responded with a cross motion for summary judgment on the merits. The Tax Court granted Miller's request to stay proceedings on the Department's motion, and this case proceeded solely on the question of issue preclusion. In an unpublished opinion, the Tax Court denied Miller's motion for summary judgment, holding that "while issue preclusion may be appropriate in certain property tax cases, it is generally not applicable in revenue cases." Miller Brewing Co. v. Ind. Dep't of State Revenue, 867 N.E.2d 713 (table), 2007 WL 1667128, *3 (Ind. Tax Ct. June 8, 2007). The Tax Court certified its order for interlocutory appeal, and we granted review.

In Miller I both parties cited the same regulation, 45 Ind. Admin. Code 3.1-1-53 (2004), which provides that "[g]ross receipts from the sales of tangible personal property ... are in this state: (a) if the property is delivered or shipped to a purchaser within this state regardless of the F.O.B. point of other conditions of sales." The regulation offers several explanatory examples, two of which are relevant here. Under example (1), "[p]roperty shall be deemed to be delivered or shipped to a purchaser within this state if the recipient is located in this state, even though the property is ordered from outside this state." Example (7) reads: "[s]ales are not `in this state' if the purchaser picks up the goods at an out-of-state location and brings them back into Indiana in his own conveyance." The Department reasoned that under example (1), if the customer was located in Indiana, the sale was in this state. Miller I, 831 N.E.2d at 861. But the Tax Court found that example (7) was controlling, reasoning that goods picked up by the customer-arranged carrier were picked up by customers and therefore not derived from this state. Id. at 862-63. This regulation and the accompanying examples remain in place.

Miller claims that issue preclusion applies in tax cases in general, and in this case in particular because: (1) the issue was decided in the prior case; (2) the issue was adjudicated to a final judgment; (3) the parties are the same; (4) the facts and the law are the same; and (5) "the purposes supporting issue preclusion apply." (Appellant's Br. at 6.) The Department responds first that issue preclusion does not apply in different tax years. (Appellee's Br. at 16-28.) The Department also raises issues not presented in Miller I and contends that issue preclusion does not bar these new considerations. Finally, the Department invites us to rule on the merits of its summary judgment motion.

Standard of Review

The Indiana Tax Court was established to develop and apply specialized expertise in the prompt, fair, and uniform resolution of state tax cases. State Bd. of Tax Comm'rs v. Indianapolis Racquet Club, 743 N.E.2d 247, 249 (Ind.2001). This Court will not set aside the Tax Court's findings or judgment with regard to issues within its expertise unless the decision is clearly erroneous. Ind. Dep't of State Revenue v. Trump Ind., Inc., 814 N.E.2d 1017, 1019 (Ind.2004); see Ind. Tax Court Rule 10. However, whether and how issue preclusion applies in tax cases is a pure question of law. Accordingly, this Court will review the question de novo. City of Carmel v. Steele, 865 N.E.2d 612, 616 (Ind. 2007).

Issue Preclusion in Tax Cases

Although most jurisdictions allow preclusion in tax litigation in some circumstances² and the Tax Court has considered the issue, this Court has never determined whether, or to what extent, issue preclusion applies in tax cases.

A. General Preclusion Doctrine

Several general principles of issue preclusion are relevant here. We have followed federal precedent in applying issue preclusion. See, e.g., Tofany v. NBS Imaging Sys., Inc., 616 N.E.2d 1034, 1037 (Ind.1993); Doe v. Tobias, 715 N.E.2d 829 (Ind.1999). In general, issue preclusion bars subsequent litigation of the same fact or issue that was necessarily adjudicated in a former suit. Tofany, 616 N.E.2d at 1037 (citing Sullivan v. Am. Cas. Co., 605 N.E.2d 134, 137 (Ind.1992)). Issue preclusion applies only to matters actually litigated and decided, not all matters that could have been decided. Kirby v. Second Bible Missionary Church, 413 N.E.2d 330, 332 (Ind.Ct.App.1980); Restatement (Second) of Judgments § 27 (1982). The matters decided must have been appealable in the original suit. The right to appeal is sufficient even if it is limited by the discretionary powers of the appellate court, as is the case in review of Tax Court decisions. See Restatement (Second) of Judgments, § 28 cmt. a. (1981). Issue preclusion may not apply where there are new facts or where a change in the law or legal climate would dictate a different outcome. Id. § 28 ("A rule of law declared in an action between two parties should not be binding on them for all time, especially as to claims arising after the first proceeding has been concluded, when other litigants are free to urge that the rule should be rejected"). However, generally facts available at the time of the first suit are foreclosed in a subsequent suit, as are new arguments based on the same legal theory. Id. § 27.

Issue preclusion is less favored against a government agency responsible for administering a body of law that affects the general public, such as tax law. Id. § 28, at 278; cf. Cablevision of Chi. v. Colby Cable Corp., 417 N.E.2d 348, 357 (Ind.Ct.App.1981). Issue preclusion is more narrowly applied against government entities to prevent statements, oversights, or conduct of government officers or agents from interfering with the public's interests or the performance of governmental function. Heckler v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S. 51, 60-61, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984) (explaining that estoppel against the government is more narrowly applied because the public is harmed when the government is unable to enforce the law due to its agents' conduct); see Jean F. Rydstrom, Annotation, Modern Status of Applicability of Doctrine of Estoppel Against Federal Government and Its Agencies, 27 A.L.R. Fed. 702, 1976 WL 38414, §§ 2-5 (1976 & Supp.2008). Accordingly, fairness to the private citizen is a proper consideration but may be subordinated to "the government's paramount responsibility to represent all of the people." Id. § 6. More recently, ...